Agency costs of free cash flow : the South African experience

The use of free cash flow has been a source of conflict between shareholders and managers. This conflict derives from the agency relationship between shareholders and managers in that decisions taken by managers (as agents) affect the shareholders (as principals). The decisions of managers may not always be in the interest of shareholders. The interests of shareholders will be served if actions of managers lead to the maximisation of the total value of the company. The free cash flow theory suggests that managers have the tendency to misuse surplus cash resources. Any use of free cash flow that is not value maximising could result in losses to shareholders. These are termed the agency costs of free cash flow. It is believed that managers will think and act as shareholders if they own significant proportions of the equity capital of companies. This dissertation examines the effects of the agency relationship on the utilisation of free cash flow.

Grantor dc:publisher.institution

Department of Finance and Tax

Year dc:date.issued

1997

Author dc:creator

• Ankude, Edem Komla

Advisor dc:contributor.advisor

• Uliana, Enrico

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/11427/9518

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/9518